Debt consolidation involves rolling all of your debts such as home loans, credit card bills and personal loans into a single, combined low interest payment. It allows you to reduce your overall debt and arrange it so that it is easier to manage.
The answer to whether you should consolidate your debt or not is dependent on you and your financial situation. Let’s explore some of the factors you should take into consideration.
Benefits of Debt Consolidation
Debt consolidation is at its most effective when there are many high interest loans that can be consolidated into a loan with a lower interest rate. You simplify the process of paying off multiple loans and you also save money by turning a 20% interest rate loan into a 10% consolidated loan.
Debt consolidation will mean keeping track of one monthly repayment instead of several at once. It will also provide you the opportunity to refinance high interest rate debts into a loan with a much lower interest rate.
Consolidation is also useful for reducing your overall monthly repayments as consolidating a shorter term loan into a longer one will reduce the amount you need to pay each month.
Problems with Debt Consolidation
If done incorrectly debt consolidation can actually result in putting you into more debt. While stretching out short term, high interest rate loans with debt consolidation will lower your repayments, you can potentially pay more in total debt and interest in the long run than if you didn’t consolidate. Therefore, if you do consolidate it is important to pay off your consolidated debt as soon as possible in order to maximise the potential savings.
Debt consolidation is a useful option to consider for anyone managing their loans but one that should be carefully considered. For more information on Debt consolidation, book a time to chat here and let’s discuss what’s best for you.